The Intellectual Property Discussion In Canada Heats Up

Editor: Mr. Coster, would you tell our readers something about your professional experience?

Coster: I have a B.Sc. in Physics from the University of Toronto and a law degree from Osgoode Hall Law School. I am also a registered patent agent for the Canadian and U.S. patent offices. I articled and then worked as an associate and partner with an intellectual property (IP) boutique in Toronto from 1988 to 2001 working in all aspects of IP law with a primary focus on patents. I joined Torys as a partner in 2001 to provide IP support to its corporate and litigation practices and to advise its clients on IP management strategy. This practice eventually evolved into a full service IP practice for the firm's Toronto and New York offices.

Editor: Please tell us about your practice. How has it evolved over the course of your career?

Coster: My practice covers the full spectrum of IP issues but has always been weighted more heavily on the patent side.

In the early years of my practice, I focused on learning the skills of a patent agent, including patent drafting and prosecution before the Canadian and U.S. patent offices and management of applications filed in other countries.

Over time, I became engaged on a strategic level with clients, helping them understand the importance of IP to their business activities. It was apparent that companies frequently made decisions on an ad hoc basis without the benefit of an overriding IP policy or strategy. Often this was because IP was not well understood or viewed as an important business asset by senior management. These were the early stages of the IP management movement, and I joined Torys with the intention of assisting its clients with their IP strategy.

I continue to be involved in patent drafting and prosecution, often at a supervisory level, but now spend a good deal of my time advising clients on developing and implementing an IP strategy within their organization.

Editor: Is there much difference between the American and Canadian patent regimes?

Coster: In many respects, no. If something is patentable in Canada, it almost certainly will be patentable in the U.S. There are some important differences, however, such as the absence of prosecution estoppel and treble damages for willful infringement in Canada and the treatment of certain subject matters such as business methods. In advising clients on patent filing strategy, our focus tends to be on the U.S. in the first instance because it is typically the most important market for the client and therefore a critical patent jurisdiction. Europe and Japan also tend to be important jurisdictions for clients, with Canada typically falling further down the list. Thus, when providing guidance to a client in Canada or the U.S., we are also careful to consider the client's international needs.

Editor: Would you tell us about Torys' Intellectual Property Financial Services Group?

Coster: We formed this group several years ago so that our financial services clients would see that the firm was in a position to provide them with the specialized advice necessary to obtain patents for their financial services innovations. We also commissioned a study of patent filing trends in this field and began offering client seminars on the topic - all with a view to better educating our clients on developments in this area. This was in response to the upswing in patent filings by companies in the financial services space following the 1998 State Street decision of the Federal Circuit - State Street Bank & Trust Company v. Signature Financial Group, Inc. - which confirmed the patentability of business methodologies. As a consequence of that decision, American banks began to file patent applications pretty aggressively in the U.S. as well as in Canada. Canadian banks and other financial service companies have taken notice and we advise a number of clients in this sector in developing internal IP strategies, managing infringement risks and developing IP portfolios.

Editor: Who are the clients?

Coster: We act for a number of high-profile Canadian financial institutions, in addition to other innovators and service providers in the financial services sector. We also act for U.S.-based entities that have IP needs in the U.S., Canada or elsewhere.

Editor: And the attorneys who constitute this practice? What kinds of expertise do they bring to the table?

Coster: They tend to be individuals who are comfortable with software and computer system technologies. The products that the banks are developing are most often implemented in a software and online computer environment. Accordingly, our lawyers in this practice area have backgrounds in computer science, electrical engineering or related disciplines. Our lawyers are also familiar with financial products and with the financial services industry generally. We are fortunate in having excellent people in all of these areas.

Editor: When you put together a team, what kinds of skill sets and areas of expertise do you draw on?

Coster: The team would typically include an experienced patent attorney, who may be aided by a more junior attorney to assist with the patent preparation. The team members would have the software and computer system expertise as previously discussed. Where an innovation such as a new financial product is at issue, we may call upon someone in our corporate or banking group with a background in whatever regulatory regime governs the introduction of such a product, and we will utilize that person's expertise in preparing a patent application. The variety of expertise that is required in such a practice is quite astonishing, and we are fortunate in being able to call upon a very deep bench.

Editor: Are there trends in the patents that you are filing?

Coster: The most notable trend we are seeing is that patent applications are being filed in the U.S. and Canada for a wide range of financial innovations by applicants ranging from individual entrepreneurs to large financial institutions. That trend began in the U.S. with the release of the State Street decision in 1998. Many large U.S. financial institutions have adopted formal IP strategies and established in-house patent departments, and the Canadian banks are beginning to follow suit. The increasing influence of patent entrepreneurs - some call them "patent trolls" - is also an interesting development. These are typically small companies with no assets other than a patent portfolio that they seek to commercialize by generating license revenues. Banks and other financial institutions are becoming an inviting target for this type of activity.

Editor: You are also the head of Torys' IP Management Group. Please tell us about the services this group provides.

Coster: The group assists clients in developing policies that will support an IP strategy, in implementing such a strategy and in aligning and integrating it with the client's overall corporate strategy. We conduct seminars and other educational offerings for employees and senior management to help develop a culture that understands and recognizes the importance of IP in the company's business. We also chair or sit in on regular IP management committees within companies to address day to day IP issues as they arise.

Our approach is to interface with internal IP personnel in the same way that outside counsel interfaces with general counsel and the members of the corporate legal department. I think this is going to be of increasing importance as companies come to realize the importance of IP to their business and, as a consequence, bring a seasoned IP professional into the senior management team and otherwise elevate the position of the IP function within the organization.

Editor: You have spoken and written about the patenting of business methods. Is this proceeding along the same lines in Canada as it has in the U.S?

Coster: Different lines. The U.S. tends to be the most aggressive when it relates to patenting business methods. The situation in Canada is more muddy. Canada does not exclude business methods from subject matter that is considered patentable, but the thresholds that must be passed to be granted a patent are considerable. However, one of the skills of a good patent draftsperson is to characterize the subject matter of a patent as something other than a business method. The elements of a software process, as well as computer system hardware, often appear in such a characterization. Patents of this nature are being granted in Canada and in other jurisdictions outside the U.S.

Editor: In recent years U.S. banks and financial institutions have been fighting patent suits - mostly focused on business methods patents - on an ongoing basis. Has this practice started up in Canada?

Coster: Canada has not yet seen the growth of patent suits in the software or business method space as has occurred in the U.S. This might be due in part to the relatively small size of the Canadian market. Furthermore, certain noteworthy patents that have been litigated in the U.S. do not have Canadian counterparts - the NTP patents, for example.

This trend might be changing however. Recently, a Canadian patent was granted to an American company, DataTreasury Corporation, directed to systems and methods for payment processing. The Canadian patent claims are similar to the claims in corresponding U.S. patents that are being enforced aggressively by DataTreasury in the Eastern District of Texas against a number of major U.S. banks and other financial service providers. It remains to be seen whether this litigation will extend to Canada.

Editor: What advice are you giving to your clients as they confront this challenge?

Coster: First, we emphasize to our clients that patents must be taken seriously. Patents are being granted for a range of technologies that could have an impact on a client's business.

We suggest that our clients develop an awareness of patents being granted in areas of technology relating to their business. By staying on top of current developments, the company is in a position to design around the patents that have already been secured. An early awareness of what the patent trolls are doing also permits the company to modify its business practices or secure a license on favorable terms where there is a risk of infringement.

We also suggest a number of steps that provide some defense against third-party patents. By developing its own patent portfolio, for example, a company may be in a position to offer a cross-license arrangement to someone bringing an infringement suit.

Editor: What about the future? How do you see this issue evolving over the next few years?

Coster: A great deal of discussion is underway in the U.S. on patent reform, and the concern has to do with what patents are being granted and how they are being enforced. I do not see this particular discussion resulting in any changes that will affect the variety or volume of patents being granted any time soon. I believe we will continue to see patents being granted in all subject areas, including areas that we have not thought of at this point. What I think is certain is the increased realization on the part of companies of the importance of IP, of the need to factor that component into the company's strategic decisions and of the importance of having an IP professional at the highest level of company management.

Please email the interviewee at rcoster@torys.com with questions about this interview.